Tougher carbon emission targets boost confidence in National Grid upgrade

National Grid has welcomed the government's decision to set tough new carbon emission targets, saying it gave the company "confidence" as it proceeds with a programme of investing £16bn to upgrade the UK's energy infrastructure by 2015.

The business behind the pipes and pylons that carry gas and electricity around Britain said the overhaul is creating 5,500 jobs and it is devoting £3.6bn to modernising the power network this year alone.

"It is a huge task to put in place the kind of changes we need to tackle the twin threats of global warming and security of energy supply, and it is important to get [policy] consistency from government," said Steve Holliday, National Grid's chief executive.

He was speaking as National Grid reported a 25% increase in pre-tax profits to £2.47bn for the year to the end of March on the back of an improved financial performance in Britain and the US.

The annual results were released just days after Chris Huhne, the energy and climate change secretary, committed Britain to halving its greenhouse gas emissions from 1990 levels in the period up to 2027.

Business leaders from the Mineral Products Association expressed deep concern about the move, saying it could wreck Britain's industrial competitiveness, but National Grid said anything that gave long-term certainty to the energy sector helped with its own investment decisions.

The company, which needs to build power lines to connect a new generation of offshore wind farms, said it was already making savings by buying transformers and switch gear in China rather than western Europe but denied that UK suppliers were missing out.

It has been scaling back on direct equity involvements in transmission companies that would operate some of the wind farm connections. It is also selling out of its stake in Blue-NG, a joint venture investing in renewable combined heat and power generation.

Holliday said the company would stay away from opportunities that did not provide the right rate of return but is pressing ahead with other projects such as research on carbon capture as well as a new 1,000-megawatt electricity "interconnector" with Belgium.

The 2010/11 profits were flattered by the timing of customer payments in the US and UK while the gas and electricity profits are largely kept at lower levels under agreements with the regulator, Ofgen.

The Grid announced an 8% increase in dividend and its shares rose 1% but analysts at Investec Securities said a tougher UK regulatory regime in future could make it a good time to sell the stock.

Holliday said he was "optimistic" about future trading and declined to comment on speculation that Lord Browne, the former BP chief executive, is a favourite to replace the current chairman, Sir John Parker, who is coming up for retirement.